Deutsche: Long/Short Hedge Funds to Get Strong
Inflow

February 10, 2004 (PLANSPONSOR.com) - More than 50%
of those putting assets into alternative investing plan to
increase allocations to Long/Short Equity hedge fund managers
in 2004 while 44% plan to increase Risk Arbitrage and 40%
plan to up their Global Macro holdings.

According to the latest alternative investing survey
by Deutsche Bank’s Equity Prime Services Group, 35% of
those surveyed (
323 pension funds, university endowments, charitable
foundations and wealthy families with more than $380
billion in hedge-fund assets) indicate a decrease in
investments to distressed debt while last year 44% said
they would increase their portfolio allocation to
distressed debt. No net change in convertible arbitrage is
expected this year.

Credit Derivative Arbitrage will register increased
inflows as 28% of participants indicate they will
increase their investment in this relatively new
strategy, Deutsche found. Finally, although the
performance of fundamental Market-Neutral Long/Short
Equity hedge funds lagged last year, 30% plan to increase
their allocation to this strategy in the year to
come.

Geographically speaking, the hedge fund allocation
to Asian domiciled managers is expected to increase from
9.4% to 12.5% while allocations to US domiciled funds are
expected to drop by 8%, the Deutsche data
indicated.

Additionally:

More than half of the investors surveyed
actively manage their hedge fund holdings and 53%
revaluate their portfolio on a monthly basis

25% of investors now say their typical hedge
fund allocation is $20 million or more

Only 21% of respondents normally allocate to a
hedge fund at inception and 38% insist that capacity
guarantees are one of the main reasons they allocate
capital to start-ups

51% of respondents report holding periods of
three or more years versus 60% in 2003

Although 32% of investors are willing to
lock-up capital for more than one year, 71% are
willing to pay an exit fee for early redemption. Some
are willing to pay up to a 3% early-redemption
penalty.

38% of survey participants have allocated funds
to a hedge fund within the first month of due
diligence, while 20% take at least six months or
more to complete the due-diligence process.

15% of investors now require their hedge fund
investments to be in funds that are registered
investment advisors.

When it comes to hedge fund due diligence, Deutsche
said investors typically interview a large number of
managers before making a single allocation.
For example, funds of funds typically conduct more
than 450 meetings with managers to make just 15
allocations.
Surprisingly, less than 1% of the respondents doing
due diligence look at fees when assessing a hedge fund
manager.

.

Similar to last year, almost all participants
require some level of transparency from their hedge fund
managers and indicate risk and strategy drift monitoring
as paramount concerns.

More than half the survey respondents have
allocated capital to hedge funds for over five years
while 44% live outside of the US (versus 38%
last year).